At some point, every business owner must answer the question: What is my exit plan?
In late 2012, an employee came up to me and asked, “So boss, what happens to the company when you are gone?” I had never really thought about the question, as I was only 56 at the time. I had no real plans for my retirement date, and I like my work. However, it made me stop and think – what will happen to the business?
Later, at another conference, the question was posed to the entire group attending, “Are you in business because you needed a job, or are you building a business to sell?”
The Great Game of Business
A few months later, I was attending an AIBD convention when a peer of mine asked if I had ever heard of this thing called “Open Book Management” or Jack Stack. Much to his surprise, my answer was no, and he quickly recommended that I order Jack’s book, The Great Game of Business, and read through it.
So I did one better and ordered two books, one for me and one for Carl Brown, my partner over at FDS.
After reading the book and going back through it several times, we realized that this solved several issues we have encountered in the past while running our businesses.
In the architectural and engineering fields, we have nothing to sell except time. While we do produce a product, it’s not like a widget you can pull off the shelf, then package and ship.
Our problem generally stemmed from efficiency issues, project scope creep, and managing budgets. So we asked ourselves, how do we get our employees to care about these things? Well, low and behold, Jack’s book had a solution.
You Won’t Know Until You Try
Carl and I spent most of 2013 studying the book, watching YouTube videos, and reviewing the system with our senior management teams. But in the end, we realized – the only way we would fully learn this concept was to move forward with it, full steam ahead.
In January, Carl and I joined an SRC Experience Event, and for two days, we learned how Jack and his team turned the former International Harvester Company (now named the Springfield Remanufacturing Company) into the powerhouse it is today.
We learned how to teach employees about financial literacy, our critical number, setting up scorecards, mini-games, High Involvement Planning, gaining buy-in, and all about “excess profits.”
At this event, we were introduced to the concept of “Open Book Management,” which literally means opening your P&L (Profit & Loss) reports to your employees and allowing them to review how the company is doing. Like most business owners, Carl and I were very skeptical of this move, as you might imagine.
Knowing that our employees did not understand financials, what kind of ripple effect could this have on our business?
Don’t Be Afraid to Ask for Help
As we headed back to Orlando, we mulled it over and finally came to the decision to move forward, but we knew we would need help. Shortly thereafter, we hired GGOB’s leading coach, Patrick Carpenter, to get us started on our journey, with the goal of going live in 2014.
Patrick came down to meet with the entire team and start our introduction to GGOB. During this time, he met with Carl, myself, and our CFO, Charlie Fout, to discuss the entire GGOB plan and how to set up a bonus plan that works off improved performance.
This was mind-blowing initially, especially when he mentioned a crazy notion – “excess profits.” In this system, a company contributes part of its profits into a pool that can be distributed among employees to supplement existing benefits. So we took the leap and decided to build a profit-sharing program around our excess profits.
In our companies, we set a cap on a percentage of the employee’s total salary with the result that their dividend is a percentage of their salary. Once we pay that bonus out, the balance of the remaining profits goes back to the owner. Now, if you picked right up on that, you are way ahead of the game, and I’ll be the first to tell you – playing the game works.
Let me lay it out for you. In 2013, before we began looking at excess profits, we paid out roughly 25 grand in bonuses the old-fashioned way. It’s a familiar story –
Ray has been here the longest and did a great job this year so we will give him x dollars; Fred was not quite as good so he gets y dollars; Eddie was a real pain, and while we do not want to give him a raise, everyone else is getting one, so it just wouldn’t be right to deprive him…
However, after switching to excess profit sharing in 2014, we paid out roughly 350 grand between our two companies. Then in 2016, we could give employees a paid week off between Christmas and New Year’s, in addition to booking a company cruise in March, which included all our employees and their significant others! With that amount of bonus, the ROI and profit margin for our companies increased over the previous year’s averages.
Since we started playing the excess profits game in 2014, our sales have increased by 2x, and our profit margin has increased by 4x. What a difference!
Along with the guidance of GGOB, we continually teach our employees the importance of financial literacy. To accomplish this end, we play mini-games to help improve on deficiencies. We have weekly huddles, provide additional training opportunities, and encourage the employees to review the P&L reports.
How to Get Started with Open Book Management Today
So how can you go about replicating our success? Well, here is the bottom line on how to play our lucrative game:
- Gain buy-in from your management team.
- Educate your employees on the basics of financial literacy.
- Empower employees to make suggestions and make changes.
- Get everyone involved in the planning of your business.
Our senior leadership does not lead the huddles, they do not build the mini-games, but they are constantly involved and work toward serving our employees.
But before you begin, here’s a word of warning. Once you start the game and your employees have a stake in the outcome – look out! You will have employees coming into your office, asking you to explain the numbers and giving advice on which of their peers need training or need to be fired.
When you let employees have a say, your choices affect their bonus, and they will definitely want to get involved. To be successful, you need to set them up with the tools to win and to win often because playing the game without an achievable award is a ticket to failure. You cannot win the real game unless they win alongside of you.
The Answer
So here is the answer to that first employee’s question: What will happen to the company when you are gone? We will hand off the business to the entire team in the future, and we are already well on our way! We will develop “employee owners” and put programs in place to slowly transition responsibility and ownership to the whole team, teaching them to take a stake in the company’s success and help the business be more profitable each year.
Mike Keesee, FAIBD – blog contributor
Updates!
Congratulations, Total Solutions Group!
For being a Great Game of Business All-Star Team for the fourth year in a row!
And…
…for becoming a 100% employee-owned company! On August 1, 2022, TSG’s ESOP (Employee Stock Ownership Plan) was completely finalized, and TSG got its answer. Mike and Carl sold the company to their team.
Steve Mickley, AIBD Executive Director, is a Certified Great Game of Business Coach and works internally with AIBD member companies to implement the game in their teams.
Schedule your first half-hour coaching session with Steve at AIBD.org/meetsteve (paid for with your AIBD Professional Membership).
Register to attend a three-hour workshop –Discover the Game– to learn more about the Great Game of Business. Your seat is already paid for with your AIBD Professional Membership. Go to the AIBD.org/hub, log into your account, and click “Discount Codes” to access a promo code to enter when you register.